April 24, 2019

April 24, 2019

Subscribe to Latest Legal News and Analysis

April 23, 2019

Subscribe to Latest Legal News and Analysis

April 22, 2019

Subscribe to Latest Legal News and Analysis

IGSP – The New Kid on the Block

MENA’s lightening speed renewables revolution must lead to generation-storage hybrid evolution

The regional pipeline of renewable deals is getting bolder and achieving unprecedented scales: in 2019 alone Abu Dhabi is planning to roll outs its 2GW of PV solar IPP, Dubai its DEWA V 900MW PV solar IPP, Qatar its phased 900MW PV solar IPP and Saudi Arabia its second round of renewables totaling in excess of 1.5GW (spread across 7 projects), just to name a few. Without factoring some of the incredible regional ambitions, notably in Saudi Arabia and its planned 200GW solar park, the effective integration of future and existing wind and solar power into a country’s grid infrastructure will require utility scale energy storage systems to maintain grid stability. 

However, one of the main impediments to the implementation of sizeable energy storage solutions has been the relative immaturity of the market. With most energy generation projects being procured regionally and in Africa via various IPP programmes the natural inclination is to approach energy storage from the same limited recourse, project financed perspective. But, as with any project finance asset, the key bankability cornerstones are the identification of a revenue stream sufficient to cover the debt service repayments and the minimization and appropriate allocation of the risk that such revenue stream will be interrupted – this includes providing risk-averse lending institution the necessary comfort that the relevant energy storage solution is based on proven technology and will withstand the punches of use, climatic conditions and time.

Of course, with the latest Jordanian battery storage project and South Africa’s Eskom touting the idea of a battery storage PPP, the MEA region is showing green shoots of energy storage projects within the traditional limited recourse frameworks, as it should. The question remains, however, whether the approach of decoupling the (what should be viewed as) mutually interdependent assets (ie. energy generation and energy storage) is the correct approach. Differently put, serious consideration should be given to whether the bold pipeline of renewable deals should be procured on the basis of combined generation-storage basis, as a single PPP – what we coined the integrated generation-storage project (IGSP). We see innumerable benefits flowing out of such approach.

Vertical integration of assets

Given the increasing scale of upcoming renewables projects, it is unlikely that energy storage solutions will overtake individual energy generation projects so as to play multi-project energy aggregator role. If anything, any energy storage solution is bound to be significantly smaller than most upcoming MEA renewables IPPs, meaning that whatever energy storage project is implemented it will play a balancing role for a specific solar park or wind farm, and not a cumulative total of assets. It therefore makes sense that such renewables IPPs are vertically engineered, allowing developers to implement the best energy generation and coexisting energy storage solution under a single IGSP.

Reduction of interfacing and de-risking of assets

From a procurer’s perspective, it makes little sense to take all power produced by a renewables plant, irrespective of whether it is needed, under a single energy tariff, while concurrently paying an energy storage company for the availability of its energy storage asset to store energy excess and regulate grid stability. In fact such an approach is value destructive – it compels the procurer to pay for (depending on what time of the day it is) power it can’t use and energy storage it doesn’t need, all the while acting as the interface between two different projects, carrying all the risk vis-a-vis power generation if its storage provider is offline and vice versa. IGSP eliminates procurer interface risk and de-risks generation-storage assets. It also drives the renewables market away from the push to the pull model, allowing procurer’s to potentially dispatch plants as and when required (akin to the conventional power plant model), if only for a limited period of time. Ironically, such an approach is mutually beneficial to the potential developers in that upsizes the traditional IPP renewables project scope and creates opportunity for competitive bidding based on value, underpinned by solutions-driven engineering and not just price.   

Convergence of contractual models and increased bankability

Clearly such an approach would also require substantial restructuring of the traditional renewables contractual package, with the resultant power and storage purchase agree wearing the hybrid characteristics of conventional power PPAs and energy storage leases. While this seems unthinkable in the present market context, it makes sense not only in light of the technological convergence but moreover with respect to improving the general bankability of energy storage projects – ie. the coupling of energy storage with energy generation might (barring complete outages) technically spread the risks that energy storage degradation and inefficiency spells for storage-only projects.  

While arguably still in the category of “watch this space”, IGSPs are the natural evolution in the renewables revolution.

© 2019 Bracewell LLP

TRENDING LEGAL ANALYSIS


About this Author

Andrej Kormuth Bracewell Partner Renewable Energy Corporate Structuring M&A IPOs Mediation Middle East Africa Dubai
Partner

Being a resident in the Middle East since 2011, Andrej Kormuth has been based in Dubai for five years and was previously in Doha for three years. Andrej also worked in South Africa (based in Johannesburg) for four years. Andrej has extensive experience guiding clients on the most innovative and significant Middle Eastern and African deals, including the latest wave of Middle Eastern power, water and waste water deals.

Andrej is internationally recognised for his market leading experience, including as a Next Generation Lawyer by The Legal 500 (2018) and a...

971.4.350.6817
Laura Capelin Finance Attorney
Senior Counsel

Laura Capelin focuses on asset-based and project finance transactions throughout the Middle East, Europe and the United States, with particular experience in financings related to major power (including renewables) and development projects. Laura advises and negotiates a range of secured and unsecured financial transactions, including structuring and negotiating senior and subordinated debt financings, acquisition and project financings, structured financings and securitizations. Her clients include sponsors and conventional and Islamic financial institutions.     

EXPERIENCE

Recent Notable Matters

Alcazar Energy Partners — solar and wind projects in Jordan and Egypt

RWE Innogy — bid in respect of the Al Abdaliyah Integrated Solar Combined Cycle project in Kuwait

Lenders — support of a bidding consortium (Marubeni and Nebras) in the Fadhili Cogeneration Project in Saudi Arabia

EDF Energies Nouvelles and Nebras Power Q.S.C. — bid for the 800 MW DEWA Solar Phase III IPP of the Mohammed Bin Rashid Al Maktoum Solar Park, Dubai, UAE

RWE Innogy — advising in respect of the Sweihan 350 MW solar IPP in Abu Dhabi, UAE

Lenders — support of a bidding consortium in relation to the Umm Al Hayman wastewater project in Kuwait

Arranger — $2 billion “whole business” securitization, combined the project and property financing techniques, of the residential and tourism development of Blue City in Oman

Major Islamic financial Institution — provision of an Islamic financing facility to an Emirate government, as lender

Members of the Qatari royal family — various Islamic financings secured by real estate located in the U.K.

Sponsor — $1 billion “whole business” securitization of an Irish issuer, collateralized with life settlement policies and SPV interests

CREDENTIALS

Education

Oxford Institute of Legal Practice, L.P.C.
2006

Oxford University, Hertford College, B.A., English Law and German Law
2005 - with honours

Bar Admissions

Solicitor of the Senior Courts of England and Wales

New York

+971.4.350.6848